The Future of Student Loans
student loan representative discusses icelandic student loans
We stand at a crossroads when it comes to the funding of higher education. Public university funding is severely lacking, which weakens our public education institutions and the quality of our studies, not to mention that students still face an inadequate student loan system. What consequences does this have for the future?
Credit: Kristinn Magnússon
The Icelandic Student Loan Fund was rebranded in 2020 after a complete review of the former student loan system. According to a transitional provision in the Loan Fund’s laws, the system must be reviewed within three years after coming into effect, and the results are to be presented in the fall of 2023. During the last two and a half years, it has become clear that the new loan system is significantly flawed, in a way that can only be rectified by legislative changes.
The reform of the Icelandic student loan system did not yield the results students had hoped for. While changes were certainly made, the amount of funding did not; instead, existing funds were simply moved around. Therefore, students must first and foremost demand that the student loan system be adequately funded upon this year’s review, if it is to truly serve their needs.
One of the pivotal changes necessary to improve the loan system is lowering the interest rate ceiling on student loans. Today, the interest rate cap is 4% for indexed loans and 9% for non-indexed loans. It’s important to note that the first draft of the Student Education Fund’s laws included no interest rate cap on loans, which would have made students extremely vulnerable considering the current economic situation. If it hadn’t been for students’ efforts, non-indexed loans would currently have a higher interest rate than 9%. However, the student movement’s fight for a better loan system is far from over - a lower interest rate cap is essential to provide financial protection for students.
Another important factor in this regard is the reform of exemptions, so that they truly take students’ diverse situations into account. In that context, we have looked to Norway and our other neighboring countries - Norway’s student loan system was the main model when reforming the current Icelandic Student Loan Fund. There, student loans are much more flexible, and students can slow down the pace of their studies without having to pay back prepaid student loans - this is possible for up to 60 ECTS credits. Delays due to illness, childbirth or disability are met with even more flexibility. In this country, students are ineligible for loans if they fail to complete 22 ECTS per semester. There are some exceptions to this rule, however, but many students have pointed out that these exceptions are selective and do not take into account their real circumstances.
For years, students have called for adequate maintenance support, but as it stands today, student loans do not meet the cost of living expenses in this country, and the same goes for additional loans to fund housing. The maximum excluded income students can earn does not improve the situation, as students who need to work alongside their studies in order to make ends meet receive a reduced student loan allocation. Students thus run the risk of ending up in a financial vicious cycle, which can obviously have a significant impact on the progress of their studies.
To solve this vicious cycle, student representatives have suggested a two-tier excluded income, similar to the Danish student loan model, so that income earned during the summer does not result in as much deduction as income earned during the winter. Considering this, it is clear that the root of the problem lies within the amount provided for basic maintenance support. If that were sufficient, students would not have to work as much alongside their studies as they currently do. Not to mention those students who simply are not able to work as well as study. It is clear then, that in order to raise the basic maintenance amount, there is a need for more funding, and the decision to fund the system properly lies in the hands of the government.
What truly determines the future of the student loan system is how we, as a society, value education, and moreover how the government views the value of education.
This, then, poses a question for our cabinet ministers: